KUCHING: AmInvestment Bank Bhd (AmInvestment Bank) has uppedprofit forecasts for Eonmetall Group Bhd (Eonmetall) who is principally involved in the manufacturing of machinery and equipment (M&E), steel products and palm oil extraction plants.
In a company report, the research arm said it upgraded its FY18-19F net profit forecasts for the company by 13 and 28 per cent respectively.
This earnings upgrade, it said, is to reflect the revenue recognition from its solvent extraction plant (SEP) business, its product and capacity expansion in plants, and its diversification and overseas expansion plans.
In particular, the group’s sale of SEP via outright sales, Built-Operate-Transfer (BOT), and Joint-Ventures (JV) are a strong catalyst due to its growing acceptance by palm oil millers in both Malaysia and Indonesia.
“Currently, Eonmetall is in negotiation with a public listed company to build several palm-pressed fibre oil extraction (PFEO) plants on a BOT basis and is expected to finalise the arrangement in the second half of 2017 (2H17),” reported the bank.
With only 18 SEP plants commissioned and constructed so far in the Malaysian and Indonesian market, AmInvestment Bank is expecting the sector to have a bright opportunity growth as there are still over 1,500 palm oil mills in the market.
Looking towards the groups’ other businesses, the bank notes that the group has recently increased its production capacity for manufacturing downstream steel products by 100 per cent to 30,000 tonnes per annum (pa) and M&E by 60 per cent to 80 units pa.
The downstream products capacity expansion will bode well for future earnings as the group’s steel and trading division commands higher margins due to in-house savings from production capabilities to process finished products and the internal sourcing of metalwork machinery.
“This reduces capital costs and enhances margins,” said the bank.
Looking forward, Eonmetall is also set to continue its exceptional growth path as it plans to expand its business overseas via a JV for steel processing plant in the UAE and the JV for a steel racking manufacturing plant into the UAE and Bangladesh.
The rationale behind the expansion plans are to penetrate these markets and cater to the demand of steel products in the Middle East and North Africa (MENA) region and South Asia region.
With everything under consideration, the bank expects that the group will be able to achieve its aspiration to become a mid-cap listed issuer on Bursa Malaysia in the near-term and maintains it ‘Buy’ rating on its stock with an upgraded future value of RM0.97 from RM0.78.
“This is based on 8 fold FY18F earning per share of 12.1 sen, which is at a discount to the manufacturing sector’s average 1-year forward price earnings ratio of 10 to 11 fold to reflect Eonmetall’s relatively small market capitalisation of less than RM150mil,” explained the bank.